Careful Considerations for College Financing

Students face a hard lesson after graduation. As a young person, debt penalizes you in two very critical ways. First, it limits your ability to invest for your future during the time when that investment can really pay off. Money invested when you’re young has the potential to compound over your working life, and every dollar you pay to reduce your debt is a dollar that can’t produce earnings invested for your future. The second way a heavy debt burden can hurt your financial future is by forcing you into the subprime lending market where you will pay higher interest for long-term home and auto loans.

A few days ago, I had the opportunity to interview Tennessee state finalists in the 4-H Consumer Education project. I was so impressed that each of these 11 young people, all 9th through 12th graders, had made solid plans for financing their college educations. And even more impressive was that each of them said they planned to get through college borrowing as little money as possible. How I wish every young person had getting through college with as little debt as possible as a serious goal! As a professor on a major college campus, I all-too-often see students borrowing as much money as they can qualify for, spending it for entertainment and “extras,” and often not even keeping a running total of their loan debt.

Think carefully before you borrow. If you’re considering student loans, it’s important to understand how much the total cost of those loans might be, including interest and other finance charges. Make sure you project how long it will take to pay the loans off after graduation and what the monthly payment will be, so you’ll have a realistic understanding of the debt penalty you’ll pay.

Make sure you select a major for which job openings and salaries are adequate to repay what you’ve borrowed. The average entry-level salaries of many majors leave little excess after living expenses for paying off debt. No student should select a major without a thorough understanding of the jobs available in the field and how much those jobs pay.

Live frugally while in college to avoid unnecessary debt. It’s tempting to borrow the maximum amount offered through student loans and use any extra to supplement your living expense or pay for “fun.” After graduation, most students agree that they would have had a brighter financial future if they had spent as little as possible while in college.

If you’re a parent…

It’s more important than ever that you begin saving early for your children’s education. Even if your savings do not completely cover the cost of college, your contributions can help your students be less dependent on educational loans and give them a head start toward a secure financial future.

If you’re a graduate...

Live frugally and avoid deferring your debt. Even if you resort to bankruptcy, your student debt is exempt, so the only option is to bite the bullet and get a start on paying it down. Fortunately, most monthly student loan payments are manageable if you budget carefully. If you have more costly (higher interest) credit card debt you may want to pay it down first, but the finance charges on even low-interest student loans can add up over time.

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Mary Brown was already a disciplined individual when she came to Wisconsin Saves coordinator Wisconsin Women’s Business Initiative Corporation (WWBIC) in last summer. She had successfully completed her bachelor’s degree with the assistance of her husband and son, and was now ready to tackle her next big dream – homeownership.

It all started when Marchale Burton overheard Alabama cooperative extension colleague Isaac Chappelle, coordinator of Alabama Saves, explaining how saving just a little bit – even change – is all it takes to become a saver. “I thought about that,” Burton said, “and wanted to see if it would work.” So, she challenged herself to see how much change she could save.

You will not believe what it took to completely change my life. About three years ago, the HR Administrator of the corporation where I worked (as a temp with no benefits) forwarded an email to me. Fifteen seconds. One small act of kindness. That's it - that's all it took!